The recent crisis in the financial sector has sparked an inquiry into the role of bank leaders in influencing regulatory approaches to the financial sector. According to reports, the heads of both Silicon Valley Bank and First Republic Bank tried to influence the U.S. government to take a softer regulatory approach in the months prior to the crisis. Lawmakers are now questioning whether the recent regulatory easing made bank failures more likely.
First Republic Bank’s CEO, Mike Roffler, sent a letter to both the Federal Reserve and the Federal Deposit Insurance Company on January 23 against a proposal to require smaller lenders to follow similar rules as systemically important banks. In his letter, Roffler argued that such requirements should only be applied to large, interconnected financial institutions whose failure could pose systemic risk to the financial stability of the U.S. However, Roffler’s view proved incorrect after the collapse of Silicon Valley Bank.
Greg Becker, former CEO of Silicon Valley Bank, was also involved in efforts to lobby the government on the writing of financial industry regulations. Becker was part of the leadership of two lobbying organizations representing the tech sector, TechNet and the Silicon Valley Leadership Group. TechNet focused on a particular section of the Dodd-Frank Act that would require financial institutions to make transaction data and other financial information available to consumers.
On Friday, the FDIC took over Silicon Valley Bank following a bank run, spurred by the company’s admission that it needed to raise capital. On Sunday, the U.S. government announced it had taken over Signature Bank of New York, and would protect both its and SVB’s depositors in full.
As a result of the collapse of Silicon Valley Bank, eleven large banks, including JPMorgan, Citigroup, and Bank of America, agreed to deposit $30 billion into First Republic Bank. The banks pledged to keep the money there for at least 120 days, either saving First Republic Bank or giving it time to pursue other options. First Republic Bank said the $30 billion cash infusion “reflects the ongoing quality of our business, and is a vote of confidence for First Republic and the entire U.S. banking system” in a statement.
Some U.S. lawmakers are already blaming banking leaders for weakening financial regulations and thus spurring the current crisis. In a Monday opinion piece for the New York Times, Senator Elizabeth Warren argued that banking executives “spent millions trying to defeat it, and, when they lost, spent millions more trying to weaken it.”
The recent events have raised questions about the effectiveness of current bank regulations, and whether they are sufficient to prevent future financial crises. The U.S. government and regulators are likely to face increased scrutiny over their approach to banking regulation in the coming months.